Prayer TimesHousing is one of a person’s basic needs, like clothing, tools, and transportation. Some people inherit a house from their parents. Others obtain housing by building a home themselves or buying a ready-made house with their own money. Nowadays, more and more people are purchasing homes on credit or through installment plans. This is because it is not easy for the average person to save up a large sum to buy a house, and government housing programs are often convenient and beneficial for the public.
At this point, it is important to remember that Islam strictly forbids giving or taking money on interest (riba).
The Qur’an states: “Allah has permitted trade and forbidden usury.” (Al-Baqarah, 2:275).
Therefore, conventional mortgages fall under prohibited transactions. However, it is worth noting that in many Islamic and secular countries, there are forms of mortgages that comply with Shariah principles.
Today, there are three main types of Islamic mortgages: ijara (leasing with an option to buy), murabaha (cost-plus deferred sale), and musharaka (diminishing partnership, where the creditor and client co-own the property and share profits, with the client gradually buying out the bank’s share).
In murabaha, the bank purchases the property for the client and sells it to them at a markup, with payment deferred over time. The total price is fixed and agreed upon in advance for the entire term. The client buys the house from the bank in installments.
In ijara, the bank buys the property and leases it to the client. During the lease period, ownership and all associated risks remain with the bank.
In musharaka, the seller, client, and bank sign a tripartite agreement. Profits are divided among the parties according to a pre-agreed ratio. The client then gradually buys out the bank’s share.
As mentioned above, the main feature of Islamic mortgages is that instead of charging interest on a loan, a markup is added to the sale price. This markup is determined between the cost price and the sale price of the property. The markup is agreed upon in advance and remains unchanged until the mortgage is fully paid off. The bank also becomes a partner to the client, so both parties share the risks equally. In this system, the bank covers the costs of registering and purchasing the property.
In contrast, with conventional bank mortgages, the borrower pays an initial down payment from their own funds, while the remaining amount is covered by the bank and the house is held as collateral. The bank lends the money at interest. If the monthly payments are not made on time, additional penalties are imposed. Such practices are contrary to Shariah principles.
Hasan AMANKUL,
“Munara” newspaper, No. 11, 2020
This content was drafted with AI assistance and reviewed by an editor.